Stockholders of record as of the close of business on the record date of June 22, 2016, will receive shares in Hertz Rental Car Holding Company, Inc. on the June 30, 2016, distribution date at a rate of one share for every five shares currently held. Each current share of Hertz Global Holdings will represent one share of Herc Holdings, but those shares will be adjusted for a 1-for-15 reverse stock split that will be implemented immediately after the separation.
Upon closing, Hertz Rental Car Holding Company will change its name to Hertz Global Holdings and will continue to manage the company’s rental car business. Also upon closing, the current Hertz Global Holdings entity will change its name to Herc Holdings Inc. and operate the equipment rental business.
A lot of wizardry to end up with the rental car business maintaining the Hertz Global Holdings name and the ‘HTZ’ ticker and for Herc Holdings to have that name and a new ‘HRI’ ticker. In short, post spinoff and reverse split, it looks like a shareholder with 15 shares today would end up with 3 shares of new HTZ and 1 share of HRI. A When-Issued market is expected to appear around June 20th for those looking to play around pre transaction.
The new company will be led by Larry Silber and Herb Henkel will serve as Herc’s Non-Executive Chairman. Herc believes it is one of the largest players in the equipment rental space, but it also thinks it only has a 4% market share (by revenue) so there should be plenty of room to grow. Its customer mix has been relatively stable over the past three years (so have its revenues) with the construction and industrial markets comprising of the vast majority of its sales. According to the Form 10, Herc will take on a bunch of debt to transfer ~$1.9b to Hertz as part of the transaction, with the proceeds being used to pay down debt and repurchase shares. While not expected to be too burdensome to the pro forma, it’s worth noting that this business (and its end users’) is highly cyclical. For example, right now, the oil & gas industry comprised 23% of its revenue in 2015, but only 19% so far in 2016.
HTZ is down about 50% since the original spinoff announcement back in 2014, but that was before material weakness in its financials were discovered. I am sure that doesn’t make its large investors, especially the ones who pushed for this transaction, feel very good though. It will be interesting to see what Carl Icahn, whose firm is the company’s largest investor with over 15% of the shares, holds onto post spinoff. Mr. Icahn is expected to purchase some of the notes being offered to finance the transaction and he recently increased his stake in Hertz – his latest 13D filing showed recent purchases of over 1m shares. He certainly seems bullish, but are you following Mr. Icahn’s lead?
Disclosure: Author holds no position in any stock mentioned